‘Conditions Remain Challenging’: CEO
Some homebuilder news. “The homebuilder Hovnanian Enterprises said Friday third-quarter earnings will come in below its previous targets, as the housing slowdown is leading to slower sales and higher cancellations. ‘Our anticipated financial results for the remainder of 2006 continue to be negatively impacted by a slower sales pace, high cancellation rates on contracts in backlog that were projected to close this year, and more pronounced use of concessions and incentives, particularly on the resale of those homes which have experienced contract cancellations,’ said Ara Hovnanian, CEO.”
“The homebuilder said it is renegotiating a ’significant number’ of its land options contracts, which is expected to result in walkaway costs.”
“Dominion Homes today announced..a net loss of $5.9 million. Douglas Borror, CEO, commented, ‘While we are disappointed with reporting a loss for this quarter, we also recognize that overall home sales conditions remain challenging in our markets. New building permits declined 27% in Columbus, 39% in Louisville and 20% in Lexington during the first six months of 2006.’”
“A $6 million impaiment charge connected to operations in Tennessee led to a second quarter loss for Fort Lauderdale-based Levitt Corp. in the second quarter 2005. Because of reduced demand in Tennessee and other markets, Levitt reduced its workforce by 9 percent in July.”
And National Mortgage News has this round-table discussion from some lending executives. “Broker magazine editor Brad Finkelstein had an interesting discussion with subprime industry participants at (a) symposium in Las Vegas, with participants Ken Logan, WarehouseUSA Capital Corp.; Michael McQuiggan Lenders Direct Capital Corp.; and Brenda White, Deloitte & Touche Capital Finance LLC.”
“BRAD: Our morning keynoter said we are about to see a second wave of subprime companies crashing. Do you agree? BRENDA: I agree with that. I think we are seeing it already. What I am seeing, is that buybacks, in particular November and December that were really, really tough. It caused people to lose money.”
“KEN: The really larger ones, the investor level, they are taking losses. As a warehouse lender, I see a lot of the balance sheets. I can’t tell you the last time I’ve seen a loan-loss reserve account on a balance sheet from a company. For somebody who doesn’t have a big safety net in the first place..they are just playing with fire at that point. Sooner or later there is going to be a repurchase and they’re totally unprepared for that.”
“KEN: Before, it used to be a lot of kicks on appraisal reviews. You are not seeing as much or hearing as much about that? MICHAEL: Companies are not adjusting to the softening of the market, and they’re still taking appraisals and not bothering to see if the value is holding.”
“MICHAEL: A high percentage of our appraisals in the last 45 days are getting cut. So we’re lowering the values and everybody is screaming. But we’re not going to go with increased values, and everybody is pushing to get the highest value out of the house.”
“BRAD: Who is cutting the appraisals? MICHAEL: The review companies. When the appraisal gets cut, and they document, ‘here are some more comps two doors away that you didn’t utilize that sold for $15,000 less,’ they have the opportunity to go back to the original appraiser and have him try to support his value. Nine times out of 10 it is the lower value that ends up staying, at least in our organization.”
“MARK: Are you seeing more fraud? MICHAEL: It has been a long time that I have been doing this, and I’ve got the first two fraud loans in the past year that were total appraiser, title company, everybody involved. The biggest fraud issue that I see..is dealing with the stated income and making the stated income reasonable for the right profession. BRENDA: It is usually collusion.”
OT: but I wanted to post this near the top of a thread because I know some of you are waiting for this info. Good news for us bears in the latest stats release for the San Fernando Valley (not available to the public for a few weeks- can’t wait for the SPIN)
Volume down 30% y/y
Average price (sfr and condo) DOWN 1.8% y/y
Median price (sfr and condo) up 1.2% y/y
Median price (single family only) up 0.3% y/y (from $580k to $582k)
Average list price of new opened escrow DOWN 0.6% y/y
Inventory is over 6 months and headed higher everyday. Slow season starts in about 1-2 months.
I think I hear the fat lady singing…
“Median price (sfr and condo) up 1.2% y/y
Median price (single family only) up 0.3% y/y (from $580k to $582k)”
I assume these medians are down from the peak, which was reached either late last summer or last fall?
We’ve been pretty much flatlined since last July, with a new all time high just last month. This price is off over 2.5% from last month.
This price is off over 2.5% from last month.
Which price? The combined median?
Combined median went from $560k (June 06) to $545k (July 06)
Good news. Thanks!!!
I also did a little more digging through some older data that just became available. In the last decline (90-96), the median price held up well into the bust. I was working in residential sales at the time and bought my own place in Oct ‘90, so I KNOW what was going on with prices. We bought our townhouse for $153,000 down from the last sale for same model of $195,000 in early ‘90. We thought we were getting a screaming deal. The median price basically flatlined all the way through late 1992. Prices were falling like ROCKS during that time. Our model townhouse was probably selling for about $115k at that point. I don’t know what statistical quirks were at work as far as the mix of properties sold, etc, but I was shocked to see how little the plumeting prices actually got reflected in the median.
deb –
I think feepness pretty much nailed the story yesterday. When prices are falling, and buyers are moving to the sidelines, falling prices tend to be offset through purchases at higher quality levels by those still brave enough to buy. The median is more stable than the quality-adjusted price, because with large inventory relative to the number of buyers, the fixer-uppers simply will no longer sell until they get fixed or repriced, while sales only occur at the high end of the quality range for comparably-priced housing.
I completely agree with you. I’m just surprise to see the degree to which the median can hold up due to the increasing quality of homes sold. All the median really reflects is what buyers are spending. It tells us nothing about what they are getting for their money.
We have gone from a ratio of 1:1 sales to listings last spring to almost 1:7 now. No doubt, buyers are getting more for their money.
Maybe it means that the buyers who can spend more, but don’t because of unrealistic valuations, are savvier, get out sooner and wait longer than their less clued-in and shallower-pocketed brethren.
I’m curious to see how much this flight to quality actuality works this time. It seems that the astronomical increases in price coupled with the ways homes are being paid for through funny money loans might make it different this time.
For example, during the previous downturn let’s say most were on the sidelines and alot of those due to job losses/uncertainty. But someone had 150K to spend on a house, so they got a much nicer house for the 150K and that 150K was from a 30yr fixed with 20% down.
Now, just to get in, you need to agree to a suicide loan and that is why so many people are on the sidelines because they just won’t do it. I don’t think the “are going to buy anyway” crowd exists in this market to anywhere near the extent that it did in previous downturns because if you are going to get a higher quality home now you still need to spend the 500-600K, which means a suicide loan. Other than a few GFs, most won’t do that but will instead wait until prices return to where they can afford under traditional terms. So the few GFs get nicer homes for now, but median still drops because they can’t come close to supporting a market propped up by suicide loans.
Hope I’m not rambling, does this make sense?
Downtown San Diego, although it is a micro-climate, has a terrible inventory level (from the perspective of sellars). There are approximately 560 to 580 resale units on the market with 1.0 to 1.3 per day sales rate. that’s an inventory level that is 14.5 to 19 months.
This rate ignores the new condos, never been lived in before, and the condos under construction. Of which, there must be around 3,000. Another 7,000 minimum are in the pipeline.
This could actually make sense if “everyone really was moving to San Diego”. IE, a 1930’s style migration. Doesn’t work as well when people are leaving the city because it’s unaffordable and the schools full of thugs and illegals.
There is much more covered in the NMN report, including the fact that some are defaulting in the first 90 days of a loan. From MarketWatch:
‘Question: I recently put my house in Los Angeles and was offered $675,000 for my home (which was $24,000 below the asking price) under the stipulation that the contract would call for a price of $775,000 and that I would give the buyer back the extra $100,000 at the close of escrow. I was told the lender didn’t need to know and that the buyer’s agent would ‘take care of the appraisal.’ I mentioned to my broker that I thought this was a fishy deal but she said there was nothing wrong with it. I asked to terminate my contract with her and was told it would cost me $5,000 to get out of my listing agreement. Now I have to start the process all over again. I’m hoping you might have some knowledge on who I can contact to file a complaint.’
‘Answer: Good for you! Too many people jump at the chance to do something like you describe without considering the consequences, which could be a hefty fine and even jail time. And not enough of those who refuse to take the bait take their stories to the authorities.’
Not a bad scam. Offer the bank no money down for their loan, pocket $100k, then get free rent until they foreclose on your ass. Lather, rinse, repeat. Much better than working I guess.
Now I get the picture — the buyer gets to live off the $100K kickback until foreclosure. And some appraiser who specializes in fraud will get yet another big commission out of the deal.
Normally its not the appraiser who gets the large commission, but the loan broker and real esate agents. Typically the appraiser only gets the normal fee. They are too much in debt to the brokers to demand more since additional business depends on making the number.
Whose interest is served by this kind of scam, where the actual price is $675K, but the official price is $775K? I guess the commission is based off the higher figure, and the comps will hide the apparent 13% drop in market value, but otherwise, I really don’t understand how the seller gains by risking a prison sentence for fraud. (I guess the seller did not understand either, judging from the $5000 he was willing to pay to terminate the broker’s contract.)
I wouldn’t have forked over $5,000. I’d have headed straight for the local Board of Realtors and filed a written complaint, with details.
It is amazing they have the gall to charge you money for refusing to participate in a crime. Where is that ethics course the NAR is hyping?
That is my question? The broker is setting up an illegal scam and then has the balls to ask for 5K when the mark turns down the offer? I hope the seller didn’t pay the fee for pete’s sake? Any idea whether it was paid?
Maybe you could counter-suit them for loss of time and agravation?
If he did pay the 5,000, he may be able to get it back. The first thing to do is report this to the Calif Dept of RE. The state has a fund to collect losses due to actions of RE Agents. Small claims is another way. I hope this homeowner helps in the loss of licenses for all involved.
Yep . That realtors should go to jail . Can you imagine that crook realtor trying to say the seller owed that thief money . In most listing contracts it states that you are entitled to cancell the listing for lack of performance or fraud on the part of the agent . . I would of gone to the agents broker as well as the real estate board immediately . Fraud regarding the lender ,collusion ,etc. etc.,right off the bat . When you get those deals where they never make a payment , I think all parties to the transaction should be under investigation .There was no intent to even make a payment .
Think about it . The seller would have to pay capital gains taxes on a higher purchase price . Why would a seller go along with this ? Is the agent ,escrow officer, appraiser and buyer all in on it ? This is why lender can’t accept a big increase on a appraisal in a short amount of time . If someone gets a purchase price of 100K over recent appraisals ,than the new buyers should put the extra 100K down.
Going only to the ‘Board’ is a waste of time. Go directly to the DRE, then to the Board. How is the seller ‘damaged’? Who is defrauded or hurt? It’s total BS.
I guess I fail to see the problem here. The house is appraised for $775 - the house is worth $675 and then has the added ‘feature’ of a briefcase full of cash sitting on the floor worth 100k. Just assume they decided to leave all the cash there instead of turning it into an upgraded kitchen!
The seller in this case does not have to pay to terminate the listing contract. The offer was not at the asking price (unacceptably low) and the buyers stipulation of the contract being written at an off market sale price is also not reasonable. Here’s a news flash - the broker is a dirt bag!
I think this happened with a listing around here recently. It was listed at $1,099,000 for months, then suddenly the price was upped to $1,249,000 and the house went into escrow. I have felt like there is really nothing for me to do. I am not a party to the transaction, and the listing history is there for the lender and appraiser to see. If anyone out there knows of a way to report suspected mortgage fraud, I’d love to know.
Calling the board and DRE is a waste of time. He should’ve called the feds. But he didn’t because there are no innocents in transactions like this all parties are in collusion. The foreclosure sheets are full of this stuff right now. From reading the posting in my mind he’s more upset that he didn’t get his full asking. I’m sure if he got his full asking you would have never seen that post. I’m sure if he would have called the agents broker with that story there would never have been a conversation of a $5000.00 cancellation fee. There’s a whole lot more to that story.
Ben, I hope you print more of the NMN article. It was pretty confusing but seemed to have a lot of valuable information on what is really going on. It would help if there is someone (you?) who can explain some of the terminology like “buyback.”
As I understand it, it refers to the originator of a mortgage having to ‘buyback’ the loan from the secondary market, due to some flaw or contractual matter. The NMN guys made it clear that these firms don’t have the capital to do much of htis.
ben.when a loan originator,say investor’s trust sign a contract with a lender such as countrywide,or world savings,they agree to repurchase ,or “buyback” loans if they meet certain criteria.like fraud.so a loan in a package of mbs goes sour,it is a stated income,or liars loan,and there is fraud(surprise!).the mbs holder tells world,or whomever “make us whole” and they do,because it is a contractual agreement.world then goes to investor’s trust and says “make us whole”,and they do,for a while,then they say hey,we’d like to,but we’re broke,talk to our insurance co.and the insurance co. says “well fellas this looks like a pattern of fraud,and collusion must have taken place,tough titty,not covered”
termination fee ? is that common
whoever uses a realwhore is an economic girlieman anyway
Oh brother. The story doesn’t support the headline.
From the Baltimore Sun:
Don’t be misled by slower realty market
It still makes sense to buy a home
Click here to find out more!
By Amy Hoak
Mcclatchy-tribune
August 4, 2006
Residential real estate, a shining star of the national economy that seemed unflappable over the past couple of years, has hit a speed bump.
Nationally, home price appreciation is slowing down from the rapid pace experienced by many markets over the past few years. Mortgage interest rates are higher than they were a few years ago.
Is this any time to be thinking about investing in a home? Of course it is - if you’re buying it for a place to live, not as a speculative investment, and can afford to take the leap.
“Owning a home is still financially not a bad deal, as long as you have the income to support the cost of homeownership,” said James P. Gaines, research economist for the Real Estate Center at Texas A&M University. Another caveat: “You better figure on living there five or six years to make any kind of profit on the thing.”
At the height of the real estate boom, people would buy houses before they were built at pre-construction rates only to sell the homes for a profit a short time later, often before construction was even complete. Speculators in some markets often could sell the property for a 20 percent to 30 percent yield, he said.
A normal real estate landscape boots out those speculators, said Anthony Hsieh, president of online lender LendingTree.com. “It’s just too risky to speculate now,” he said.
In a growing number of local markets, buyers have more time to think about a home before they make a decision on whether to purchase it. Last year, that often wasn’t a likely luxury.
“Once you as a potential buyer found a house that met your needs, you had to jump on it right away,” said Frank E. Nothaft, chief economist for Freddie Mac. “One thing that we’re seeing nowadays - compared to six or 12 months ago - is many markets where homes are staying on the market longer.”
Home sales are expected to decline in 2006, yet the year should finish as the third-strongest on record, according to a midyear report given by Nothaft last month.
“The biggest fraud issue that I see..is dealing with the stated income and making the stated income reasonable for the right profession.:”
not to be cynical, but how about just trying to VERIFY the income of these fraudsters before you lend them $600.000. sheez.
The biggest fraud issue is phony appraisals with people getting 100K , etc. over market and taking the money and running .
The second biggest fraud issue is loan application fraud by speculators and marginal buyers . Both issues of fraud can be solved by lenders doing their job and verfying everything .
The secondary market should cut all thses sleeze mortgage companies off right now and leave them holding the bag with their creep loans .
agreed,
yeah, everything has modeled out well when real estate market is going up 25% per year, but now that we’re seeing declines, do the mbs buyers really want to buy this junk? they can’t revise their risk premiums fast enough. imho.
““Dominion Homes today announced..a net loss of $5.9 million. Douglas Borror, CEO, commented, ”
The housing decline is just getting started. Ouch!
David
http://bubblemeter.blogspot.com
anyone curious about the level of fraud in stated income loans should check out MBARL.org,and click on facts.i knew it was bad,but i nearly spewed when i saw the numbers.this degree of fraud seems likely to intensify,and spped the downturn.
Why is this a suprise?
If you can get a much cheaper mortgage by simply supplying a paystub from you job, wouldn’t you do that?
Stated income loans were originally developed for self employed business people who don’t run all their income through the books. What happened after that though is that every tom, dick, and harry that went to a mortgage person and didn’t qualify using their real income, used this product.
If you work for a company that gives you a paycheck, there is no reason to use these programs unless you need to misrepresent your actual income
BRAD: Our morning keynoter said we are about to see a second wave of subprime companies crashing. Do you agree? BRENDA: I agree with that. I think we are seeing it already. What I am seeing, is that buybacks, in particular November and December that were really, really tough. It caused people to lose money.”
Would someone comment on this? Is she saying that the secondary money market is making the broker buy back the loan because their package did not meet their criteria?
..or should I say subsequent discovery of fraud?
I hope this isn’t too far off the beam, but I really think that society has mauled the definitions of “truth” and “lie” to the point where most everyone is inured and fraud, petty and ignorant or wilfull and malicious, is pretty much what we’re swimming in.
When I point out in a medical office that I can’t sign the Privacy Act disclosure statement that says I have a copy of the office’s policy, because I was *not* given a copy of the office’s policy, I get a blank stare…and an eventual, “Oh, you want that?” I figure 99.99% of people will sign just about anything, if it’s a “standard form”.
I just registered our youngest for kindergarten, having been told by the school secretary that if I did not provide my child’s social security # and original SS card, she would be denied enrollment. Did a bit of research, found out that under federal law, public schools *cannot* require a student’s SS#, a fact conceded on my state’s Dept. of Education website. Upon enrollment, refusing to give the #, I created something of an “incident”. Without revealing my knowledge, I appealed to the school in the interest of my child’s privacy (identity theft concerns. They use that # as an ID for EVERYTHING.). No go. I showed the website’s citation. (”Yeah, where is this from?”) When the dust cleared, I was issued a unique PIN not tied to my child’s SS# (a form specifically for doing just that “magically” appeared). I asked the school secretary point blank why she had told me/had been directed to tell me an untruth. The reply: “I asked for the #. You’re responsible, as the parent, for saying no.”
“Right, and I did the research, and I said no. That doesn’t change the fact that what you told me was untrue.”
Truly, I still don’t think she got my point. From her perspective, she was just doing her job.
I went on to my middle schooler’s school, and went through the same charade, just so she, too, won’t have her social viewable to everyone in the cafeteria line.
I know this is a big digression, but it ain’t about corruption in a single industry - corruption has merely enjoyed greater opportunities in RE lately. Half the country has to lie professionally, and the other half is at least minorly complicit insofar as it is overwhelming to challenge and fight it all. It will be an untenable financial burden on the taxpayer to sort out the RE frauds in court as this mess unfolds. I doubt there will be much more than a few sacrificial lambs, because the jails couldn’t begin to hold everyone who has knowingly colluded.
Gonna go adjust my tinfoil hat, now.